LAR Chemical Company manufactures a wide variety of chemical compounds and liquids for industrial uses. The standard mix for November’s production of 40,000 litres of Product “A” and the budgeted costs for that mix, are as follows: Liquid Chemical Quantity (in litres) Cost (per litre) Total Cost Maxan Xulon Cralyn 8,000 24,000 18,000 $2.00 $.75 $1.00 $16,000 18,000 18,000 The actual quantities of direct materials and the cost of the materials placed in production during November to product Product “A” were as follows (all materials purchased were used): Liquid Chemical Quantity (in litres) Total Cost Maxan Xulon Cralyn 8,480 25,200 18,520 52,200 $17,384 17,640 16,686 $51,710 A total of 40,000 good litres of Product “A” were produced during November. REQUIRED: Calculate the direct materials efficiency, mix, and yield variances for each raw material.
Variance Analysis
In layman's terms, variance analysis is an analysis of a difference between planned and actual behavior. Variance analysis is mainly used by the companies to maintain a control over a business. After analyzing differences, companies find the reasons for the variance so that the necessary steps should be taken to correct that variance.
Standard Costing
The standard cost system is the expected cost per unit product manufactured and it helps in estimating the deviations and controlling them as well as fixing the selling price of the product. For example, it helps to plan the cost for the coming year on the various expenses.
Question I – Variances
LAR Chemical Company manufactures a wide variety of chemical compounds and liquids for industrial uses. The standard mix for November’s production of 40,000 litres of Product “A” and the budgeted costs for that mix, are as follows:
|
Liquid Chemical |
Quantity (in litres) |
Cost (per litre) |
Total Cost |
|
Maxan Xulon Cralyn |
8,000 24,000 18,000 |
$2.00 $.75 $1.00 |
$16,000 18,000 18,000 |
The actual quantities of direct materials and the cost of the materials placed in production during November to product Product “A” were as follows (all materials purchased were used):
|
Liquid Chemical |
Quantity (in litres) |
Total Cost |
|
Maxan Xulon Cralyn |
8,480 25,200 18,520 52,200 |
$17,384 17,640 16,686 $51,710 |
A total of 40,000 good litres of Product “A” were produced during November.
REQUIRED:
Calculate the direct materials efficiency, mix, and yield variances for each raw material.
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